prime margining guide

8/13/2019 PRiME Margining Guide

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PRiMEMargining Guide

October 2012

Document Version 1.05

Copyright 2003-2012HKExAll Rights Reserved

This document describes the algorithm of PRiME. No part of this PRiME Margining Guide may becopied, distributed, transmitted, transcribed, stored in a retrieval system, translated into any humanor computer language, or disclosed to third parties without written permission from HKEx.

Disclaimer:HKEx endeavors to ensure the accuracy and reliability of the information provided, but takes noresponsibility for any errors or omissions or for any losses arising from decisions, action, or inaction

based on this information. HKEx reserves the right to amend the contents of this guide without priornotice.


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CONTENTS

INTRODUCTION .............................................................. ................................................................... ............................ 2PART 1. MARGINING BASIS FOR DIFFERENT ACCOUNT TYPES IN DCASS .............................. .................. 3PART 2. PRIME CALCULATION ALGORITHM ............................................................................................... ....... 3

2.1. RISK ARRAYS.................................................... ................................................................... ............................ 32.2. SCAN RISK...................................................................................................... .................................................. 42.3. COMPOSITE DELTA............................................................................. .............................................................. 62.4. INTRACOMMODITY (INTERMONTH)SPREAD CHARGE.......................................................... ............................. 62.5. SPOT MONTH CHARGE............................................................. ................................................................... ...... 82.6. COMMODITY RISK............................................. ................................................................... ............................ 82.7. SHORT OPTION MINIMUM CHARGE................................................................ ................................................... 82.8. LONG OPTION VALUE............................................................................................... ........................................ 92.9. TOTAL MARGIN REQUIREMENT FORNET MARGINING...................................................................................... 92.10. TOTAL MARGIN REQUIREMENT FOR GROSS MARGINING................................................................................ 10

PART 3. EXAMPLES ........................................................ ................................................................... .......................... 123.1 HKCCPRODUCTS......................................................... ................................................................... ............... 123.2 SEOCHPRODUCTS.................................................................. ................................................................... .... 18


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Part 1. Margining Basis for Different Account Types in DCASS

The different types of account maintained by HKCC and SEOCH for each Clearing Participant inDCASS are set forth in their respective Clearing House Procedures. The Clearing House margincalculation for each type of account is different depending on whether it is margined on a net or gross

basis.

Account types in DCASS subject to net margining are House, Market Maker, Individual Client andClient Offset Claim Accounts.

Account types in DCASS subject to gross margining are Omnibus Client, Sink and Daily Accounts.

Part 2. PRiME Calculation Algorithm

2.1. Risk Arrays

The Risk Array represents how a derivative instrument (for example, an option on a future) willgain or lose value from the current point in time to a specific point in time in the near future whichis typically set to one trading day. PRiME evaluates the maximum likely loss that may reasonablyoccur over one trading day under a set of the risk scenarios.

The specific set of the risk scenarios are defined in terms of (a) how much the price of the

underlying instrument is expected to change over one trading day which is defined as the Price ScanRange, and (b) how much the volatility of that underlying price is expected to change over onetrading day which is defined as the Volatility Scan Range. The results of the calculation for eachrisk scenario, the amount by which the derivative instrument will gain or lose value over one tradingday under that risk scenario, is called the Risk Array value for that scenario. The set of Risk Arrayvalues for that contract under the full set of risk scenarios constitutes the Risk Array.

Risk Array values are calculated for a single long position. "Long" means long the instrument, notlong the market: buying a put and buying a call both constitute long positions in PRiME. RiskArrays for all contracts in PRiME have the same structure and are constructed for a long position. ARisk Array for a short position can be obtained by multiplying values in the Risk Array for the long

position by minus 1.

Risk Array values are typically represented in the currency in which the contract is denominated.All dollar values are losses rounded to the nearest $1. A positive number shows a value loss and anegative number shows a value gain.

The two scenarios on Line 15 and 16 are designed to cover the loss of out-of-the-money options due tothe unexpected adverse price move.

The Composite Delta is computed for the purpose of Intracommodity Spread Charge calculations andshown in Line 17.

Line Underlying Price Change Volatility Change1. Unchanged Up


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For net margined account, add across arrays on each line to find the Total Loss of thisCombined Commodity. Scan Risk is the largest total loss in the 16 scenarios. If the largest totalloss is negative, set the Scan Risk to be zero.

Example :

The Risk Arrays after multiplying the position size of a net margined account are as below.

ScenarioHKB92.50H3

20 shortHKB80.00U3

50 longHKB70.00X3

30 short Total

1 3,040 -1,350 540 2,2302 -1,680 350 -120 -1,4503 13,100 -650 330 12,7804 9,840 400 -120 10,1205 -5,800 -2,500 810 -7,490

6 -11,720 300 -120 -11,5407 24,120 -200 210 24,1308 22,120 400 -120 22,4009 -13,200 -4,250 1,200 -16,25010 -19,600 150 -90 -19,54011 35,860 50 90 36,00012 34,720 400 -120 35,00013 -19,020 -6,800 1,710 -24,11014 -24,940 -250 -90 -25,28015 33,380 100 -30 33,45016 -9,000 -14,150 1,650 -21,500

Scan Risk for this Combined Commodity is the Largest Total Loss, i.e., $36,000

For gross margined account, Scan Risk for each contract is separately calculated.

Example :

The Risk Arrays after multiplying the position size of a gross margined account are as below.

Scenario HKB92.50H320 short HKB80.00U350 long HKB70.00X330 short

1 3,040 0 5402 -1,680 0 -1203 13,100 0 3304 9,840 0 -1205 -5,800 0 8106 -11,720 0 -1207 24,120 0 2108 22,120 0 -1209 -13,200 0 1,200

10 -19,600 0 -9011 35,860 0 9012 34,720 0 -120


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13 -19,020 0 1,71014 -24,940 0 -9015 33,380 0 -3016 -9,000 0 1,650

Scan Risk for short 20 HKB92.50H3 = $35,860Scan Risk for short 30 HKB70.00X3 = $1,710

2.3. Composite Delta

PRiME uses delta information to form spreads. Delta values measure the manner in which afuture's or an option's value will change in relation to changes in the value of the underlyinginstrument. Futures deltas are always 1.0; options deltas range from -1.0 to +1.0. Moreover, optionsdeltas are dynamic: a change in value of the underlying instrument will affect not only the option's

price, but also its delta statistic.

PRiME employs only one Composite Delta value per contract, called the "Composite Delta". It isderived as the weighted average of the deltas associated with each underlying price scan point. Theweights associated with each scan point are based upon the probability of the associated pricemovement, with more likely price changes receiving higher weights and less likely price changesreceiving lower weights.

2.4. Intracommodity (Intermonth) Spread Charge

As PRiME scans underlying prices within a single underlying instrument, it assumes that pricemoves correlate perfectly across contract months. Since price moves across contract months do notgenerally exhibit perfect correlation, PRiME adds an Intracommodity Spread Charge to the ScanRisk associated with each underlying instrument under net margining. No Intracommodity SpreadCharge will be applied for gross-margined accounts.

For each underlying instrument in which the portfolio has positions, PRiME identifies theComposite Delta associated with that underlying. As spreads are formed, PRiME keeps track foreach tier (a set of consecutive contract months) of how many Composite Deltas have beenconsumed by spreading for the tier. For each spread formed, PRiME assesses a charge per spread atthe specified charge rate for the spread. The total of all of these charges for a particular CombinedCommodity constitutes the Intracommodity Spread Charge for that Combined Commodity.

The steps to calculate Intracommodity Spread Charge for portfolio's positions in one CombinedCommodity are shown below.

For each futures or option in this Combined Commodity,

1. Identify the contract months for each tier.

Select a contract month where this portfolio has positions for each tier. Ignore the contractmonths where this portfolio does not have positions.


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2. Calculate the Composite Delta for each contract month.

A. Within this contract month, select the Risk Arrays where this portfolio has positions.Ignore the Risk Arrays where his portfolio does not have positions.

B. Multiply Line 17 on each selected Risk Array by the corresponding position size. Line17 contains the Composite Delta value.

For long futures, long calls and long puts, multiply by a positive position size. Forshort futures, short calls and short puts, multiply by a negative position size.

For Combined Commodity which contains standard and mini contracts (or capitaladjusted contracts), the Composite Delta should be adjusted by the Delta Scaling Factor

before being multiplied by the position size.

Examples: If a position is long 2 standard call contracts and Delta Scaling Factor is

1.00, multiply by +2 and 1.00If a position is short 2 mini call contracts and Delta Scaling Factor = 0.2,multiply by -2 and 0.20

C. Add the figures calculated in step B for all options and futures in this contract month tofind this contract month's Composite Delta.

D. Repeat steps A to C for each contract month.

3. Calculate the total net long Composite Delta/short Composite Delta.

A. Identify the contract months where this portfolio has net long/short Composite Delta.

B. Add up the net long/short Composite Deltas to find the total net long/short CompositeDelta.

4. Calculate the number of Intracommodity Spreads.

A. Compare the absolute value of the total net long Composite Delta value to the absolutevalue of the total net short Composite Delta value. Select the smaller absolute value.

B. The result in step A is the number of Intracommodity Spreads.

Examples: If the total net long Composite Delta value is +5 and the total net shortComposite Delta value is -3, then form 3 Intracommodity Spreads.

If the total net long Composite Delta value is +2 and the total net shortComposite Delta value is -6, then form 2 Intracommodity Spreads.

5. Calculate the Intracommodity Spread Charge.

Multiply the number of Intracommodity Spreads by the Intracommodity Spread Charge Rate

for this Combined Commodity. The result is the Intracommodity Spread Charge.

Example:


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If the Intracommodity Spread Charge Rate is $7,500 and there are 2 spreads, then theIntracommodity Spread Charge is $15,000.

2.5. Spot Month Charge

PRiME applies a Spot Month Charge to each applicable spot month contract (specified by theclearing house from time to time) to cover additional risk that may arise during the period leadingup to the final settlement.

The steps to calculate the Spot Month Charge for portfolio's positions in one Combined Commodityare shown below for gross and net margined accounts.

1. Identify the Composite Delta of each applicable spot month contract consumed byIntracommodity Spread (for net margined account).

2. Identify the Composite Delta of each applicable spot month contract remaining in outrights.

3. Multiply the result in step 1 by the Spot Month Charge per Delta consumed by

Intracommodity Spread (for net margined account).

4. Multiply the result in step 2 by the Spot Month Charge per Delta remaining in outrights.

5. Add up the results in step 3 and 4.

6. Repeat step 1 to 5 for each applicable spot month contract.

2.6. Commodi ty Risk

Commodity Risk is the total risk of all contracts within the same Combined Commodity.

Commodity Risk = Scan Risk + Intracommodity Spread Charge + Spot Month Charge

2.7. Short Option Minimum Charge

PRiME requires a Short Option Minimum Charge for each short option in a portfolio. It serves as alower bound of margin requirement for the Combined Commodity comprising short options.

For the Combined Commodity,

1. Identify the Short Option Minimum Charge Rate for this commodity.

2. Count the number of short call and put options in this portfolio's positions in this Combined

Commodity. Do not count long calls, long puts and futures. Take the maximum of number ofshort call and put options.


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3. Multiply the result in step 1 by the result in step 2. The result is the Combined CommodityShort Option Minimum Charge.

For Combined Commodity which contains standard and mini contracts (or capital adjustedcontracts), the number of short call and put should be adjusted by the Delta Scaling Factor

before being multiplied by the Short Option Minimum Charge Rate.

Short Option Minimum Charge= Maximum (number. of short call, number of short put) x Short Option Minimum ChargeRate x Delta Scaling Factor

Examples:Short 5 standard call contracts (Short Option Minimum Charge Rate is $6,000, Delta ScalingFactor is 1.00);Short 2 standard put contracts (Short Option Minimum Charge Rate is $6,000, Delta Scaling

Factor is 1.00);Short 5 mini put contracts (Short Option Minimum Charge Rate is $6,000, Delta Scaling Factoris 0.20);Short 2 mini call contracts (Short Option Minimum Charge Rate is $6,000, Delta ScalingFactor is 0.20)

Short Option Minimum Charge= Max [(5 x 1.00 + 2 x 0.20), (2 x 1.00 + 5 x 0.20)] x $6,000 = $32,400

2.8. Long Option Value

Long Option Value is applied to all long options in each Combined Commodity. It serves as an upperbound of margin requirement for each Combined Commodity with solely net long calls and/or long put.It is not applicable for SEOCH's premium-style options.

For each long option contract in this Combined Commodity,

1. Multiply the number of long positions by option contract value to obtain Long Option Valuefor each of the contract.

Long Option Value = number of long positionsxoption contract value

where option contract value = option settlement price x contract multiplier

2. Add up all the Long Option Value in step 1 to derive Long Option Value for the CombinedCommodity.

2.9. Total Margin Requirement for Net Margining

1. Calculate Commodity Risk.


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2. Take the maximum of result from step 1 and Short Option Minimum Charge.

3. Check to see if all of the net positions for this Combined Commodity are solely long putsand/or long calls. If so, and if this result is greater than the Long Option Value, reduce thisresult to the Long Option Value.

4. Repeat steps 1 through 3 for all the Combined Commodity in the portfolio.

5. Group the result in step 4 by Currency of the Contract.

6. For HKCC's futures and futures-style options, Total Margin Requirement in each Currency ofthe Contract

= Result from step 5 of that Currency of the Contract

7. For SEOCH's premium-style options,

A. Calculate the Total Margin Requirement in each Currency of the Contract

= Result from step 5 of that Currency of the Contract + total option value of thatCurrency of the Contract

B. Check to see if there is a margin credit (negative Total Margin Requirement) in oneCurrency of the Contract and a margin debit (positive Total Margin Requirement) inother Currency of the Contract. If so, apply the margin credit to offset the margin debit.Before the offset, convert the margin credit into the currency (conversion rate will bedetermined by the clearing house from time to time) in which the margin debit isdenominated.

C. If step B results in margin debit(s), the margin debit(s) will become the Total MarginRequirement. If step B results in margin credit(s), the margin credit will be set to zeroand there will be no Total Margin Requirement.

2.10. Total Margin Requirement for Gross Margining

1. Calculate Scan Risk for each of the contract.

2. Calculate Spot Month Charge for each of the applicable contract.

3. Take the maximum of result from the sum of step 1 and 2, and the Short Option MinimumCharge for the contract.

4. Repeat steps 1 through 3 for all the contracts in the portfolio.

5. Group the result in step 4 by Currency of the Contract

6. Add up the result in step 5.

For HKCC's futures and futures-style options, Total Margin Requirement in each Currency ofthe Contract

= Result from step 5 of that Currency of the Contract


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For SEOCH's premium-style options, Total Margin Requirement in each Currency of theContract

= Result from step 5 of that Currency of the Contract + total option value of that Currency ofthe Contract


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Part 3. Examples

3.1 HKCC Products

Portfolio A under Net Margining

Long 1 MAY HSI FuturesShort 4 JUN Mini-HSI Futures

HSI and Mini-HSI contracts are grouped into the same Combined Commodity. Delta Scaling Factorfor HSI is 1.0 and mini-HSI is 0.2.

1. Scan Risk

Risk Arrays:

Line +1 MAY HSI FuturesP/L

-4 JUN Mini-HSI FuturesP/L

TotalP/L ($)

1 0 0 02 0 0 03 -10,000 +8,000 -2,0004 -10,000 +8,000 -2,0005 +10,000 -8,000 +2,0006 +10,000 -8.000 +2,0007 -20,000 +16,000 -4,0008 -20,000 +16,000 -4,000

9 +20,000 -16,000 +4,00010 +20,000 -16,000 +4,00011 -30,000 +24,000 -6,00012 -30,000 +24,000 -6,00013 +30,000 -24,000 +6,00014 +30,000 -24,000 +6,00015 -21,000 +16,800 -4,20016 +21,000 -16,800 +4,20017 +1.00 -4.00

Scan Risk = $ 6,000

2. Intracommodity Spread Charge

Composite Delta for HSI Futures: +1Composite Delta for Mini-HSI Futures: +1

The Composite Delta after adjusted by the Delta Scaling Factor:Long 1 MAY HSI Futures = +1 x 1 x 1.0 = +1Short 4 JUN Mini-HSI Futures = +1 x (-4) x 0.2 = -0.8

0.8 Intracommodity Spread can be formed

Intracommodity Spread Charge = 0.8 x $7,500 = $6,000


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3. Total Margin Requirement

Total Margin Requirement= Max (Commodity Risk, Short Option Minimum Charge)= Max (Scan Risk + Intracommodity Spread Charge, 0)

= Max (6,000 + 6,000,0)= $12,000

Portfolio A under Gross Margining

Long 1 MAY HSI FuturesShort 4 JUN Mini-HSI Futures

1. Scan Risk

Risk Arrays:


-4 JUN Mini-HSI FuturesP/L

1 0 02 0 03 -10,000 +8,0004 -10,000 +8,0005 +10,000 -8,0006 +10,000 -8.0007 -20,000 +16,0008 -20,000 +16,0009 +20,000 -16,00010 +20,000 -16,00011 -30,000 +24,00012 -30,000 +24,00013 +30,000 -24,00014 +30,000 -24,00015 -21,000 +16,80016 +21,000 -16,80017 +1.00 -4.00

Scan Risk

Long 1 MAY HSI Futures : 30,000

Short 4 JUN Mini-HSI Futures: 24,000


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Total Margin Requirement

= [Max (Scan Risk, Short Option Minimum Charge) for each contract]= Max (30,000,0) + Max (24,000,0)

= $54,000

Portfolio B under Net Margining

Long 1 MAY HSI FuturesShort 2 JUN HSI 10,000 Call Options

1. Scan Risk

Risk Arrays:


-2 JUN HSI 10,000 CallP/L

TotalP/L ($)

1 0 +4,336 +4,3362 0 -4,337 -4,3373 -10,000 +5,555 -4,4454 -10,000 +7,054 -2,9465 +10,000 -5,166 +4,8346 +10,000 -13,488 -3,4887 -20,000 +28,404 +8,4048 -20,000 +20,539 +5399 +20,000 -12,939 +7,06110 +20,000 -20,422 -42211 -30,000 +42,735 +12,73512 -30,000 +35,842 +5,84213 +30,000 -19,057 +10,94314 +30,000 -25,338 +4,66215 -21,000 +31,745 +10,74516 +21,000 -10,717 +10,28317 +1.00 -1.04

Scan Risk = $ 12,735


Composite Delta for 1 HSI Futures: +1Composite Delta for 1 10,000 HSI Call Options: +0.52

The Composite Delta after adjusted by Delta Scaling FactorLong 1 MAY HSI Futures = +1 x 1 = +1Short 2 JUN HSI Call Options = +0.52 x (-2) = -1.04

i.e. One Intracommodity Spread can be formed

Intracommodity Spread Charge = 1 x $7,500 = $7,500


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3. Short Option Minimum Charge

Short Option Minimum = $6,000 x 2 = $12,000


Total Margin Requirement= Max [Commodity Risk, Short Option Minimum Charge]= Max [Scan Risk + Intracommodity Spread Charge, Short Option Minimum Charge]= Max [12,735 + 7,500, 12,000]= $20,235

Portfolio B under Gross Margining

Long 1 MAY HSI FuturesShort 2 JUN HSI 10,000 Call Options

1. Scan Risk

Risk Arrays:


-2 JUN HSI 10,000 CallP/L

1 0 +4,3362 0 -4,3373 -10,000 +5,5554 -10,000 +7,0545 +10,000 -5,1666 +10,000 -13,4887 -20,000 +28,4048 -20,000 +20,5399 +20,000 -12,93910 +20,000 -20,42211 -30,000 +42,73512 -30,000 +35,842

13 +30,000 -19,05714 +30,000 -25,33815 -21,000 +31,74516 +21,000 -10,71717 +1.00 -1.04

Scan Risk

Long 1 MAY HSI Futures: 30,000

Short 2 JUN HSI 10,000 Call Options: 42,735




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= [Max (Scan Risk, Short Option Minimum Charge) for each contract]= Max (30,000,0) + Max [42,735, 2 x 6,000]= $72,735

Portfolio C under Net Margining

Long 2 MAR CNH Futures (applicable to Spot Month Charge)Short 1 APR CNH Futures

1. Scan Risk

Risk Arrays:

Line +2 MAR CNH Futures

P/L

-1 APR CNH Futures

P/L

Total

P/L (RMB)1 0 0 02 0 0 03 -4,000 +2,000 -2,0004 -4,000 +2,000 -2,0005 +4,000 -2,000 +2,0006 +4,000 -2,000 +2,0007 -8,000 +4,000 -4,0008 -8,000 +4,000 -4,0009 +8,000 -4,000 +4,00010 +8,000 -4,000 +4,00011 -12,000 +6,000 -6,00012 -12,000 +6,000 -6,00013 +12,000 -6,000 +6,00014 +12,000 -6,000 +6,00015 -10,800 +5,400 -5,40016 +10,800 -5,400 +5,40017 +2.00 -1.00

Scan Risk = RMB 6,0002. Intracommodity Spread Charge

Composite Delta for Long 2 MAR CNH Futures = +1 x 2 = +2Composite Delta for Short 1 APR CNH Futures = +1 x (-1) = -1

1 Intracommodity Spread can be formed

Intracommodity Spread Charge = 1 x RMB 3,600 = RMB 3,6003. Spot Month Charge

Delta of spot month contract consumed by Intracommodity Spread = 1Delta of spot month contract remaining in outrights = 1


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Spot Month Charge= (Delta consumed by spread x Spot Month Charge per Delta consumed by spread)

+ (Delta remaining in outrights x Spot Month Charge per Delta remaining in outrights)= RMB (1 x 1,200 +1 x 1,200) = RMB 2,400


Total Margin Requirement= Max (Commodity Risk, Short Option Minimum Charge)= Max (Scan Risk + Intracommodity Spread Charge + Spot Month Charge, 0)= Max (6,000 + 3,600 + 2,400, 0)= RMB 12,000

Portfolio C under Gross Margining

Long 2 MAR CNH Futures (applicable to Spot Month Charge)Short 1 APR CNH Futures

1. Scan Risk

Risk Arrays:

Line +2 MAR CNH FuturesP/L

-1 APR CNH FuturesP/L

1 0 02 0 03 -4,000 +2,0004 -4,000 +2,0005 +4,000 -2,0006 +4,000 -2,0007 -8,000 +4,0008 -8,000 +4,0009 +8,000 -4,00010 +8,000 -4,00011 -12,000 +6,00012 -12,000 +6,000

13 +12,000 -6,00014 +12,000 -6,00015 -10,800 +5,40016 +10,800 -5,40017 +2.00 -1.00

Scan Risk

Long 2 MAR CNH Futures : 12,000

Short 1 APR CNH Futures : 6,000

2. Spot Month Charge

Delta of spot month contract remaining in outrights = 2


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Spot Month Charge= Delta remaining in outrights x Spot Month Charge per Delta remaining in outrights= 2 x RMB 1,200 = RMB 2,400



=[Max (Scan Risk + Spot Month Charge, Short Option Minimum Charge) for eachcontract]= Max (12,000 + 2,400,0) + Max (6,000 + 0,0)= RMB 20,400

3.2 SEOCH Products

Portfolio D under Net Margining

Long 1 MAY HKB90.00 Call, Settlement Price = HKD 1.00Short 2 JUN HKB100.00 Call, Settlement Price = HKD 0.60Long 1 MAY RMZ50.00 Call, Settlement Price = RMB 3.00

HKB is denominated in HKD while RMZ is denominated in RMB.1. Scan Risk

Risk Arrays of HKB (HKD):

Line +1 MAY HKB90.00 CallP/L

-2 JUN HKB100.00 CallP/L

TotalP/L (HKD)

1 0 +80 +802 +1,100 -50 +1,0503 -623 +1,234 +6114 -623 +1,126 +5035 +623 -1,018 -3956 +623 -1,288 -6657 -1,247 +2,422 +1,175

8 -1,247 +2,366 +1,1199 +1,242 -2,018 -77610 +1,242 -2,408 -1,16611 -1,871 +3,642 +1,77112 -1,871 +3,612 +1,74113 +1,854 -2,946 -1,09214 +1,868 -2,414 -54615 -1,310 +2,574 +1,26416 +1,251 -1,810 -55917 +1 -1.30

Scan Risk = HKD 1,771

Risk Arrays of RMZ (RMB):


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Line+1 MAY RMZ50.00 Call Total

P/L P/L (RMB)

1 -315 -315

2 +393 +393

3 -840 -840

4 -198 -198

5 +124 +124

6 +812 +812

7 -1,445 -1,445

8 -924 -924

9 +475 +475

10 +1,063 +1,063

11 -2,120 -2,120

12 -1,736 -1,73613 +742 +742

14 +1,185 +1,185

15 -2,094 -2,094

16 +375 +375

17 +0.50

Scan Risk = RMB 1,185


Composite Delta for 1 MAY HKB90.00 Call: +1Composite Delta for 1 JUN HKB100.00 Call: +0.65

The Composite Delta:Long 1 MAY HKB90.00 Call = +1 x 1 = +1Short 2 JUN HKB100.00 Call = + 0.65 x (-2) = -1.30

i.e. One Intracommodity Spread of HKB can be formed in the Portfolio D

Intracommodity Spread Charge = 1 x HKD 450 = HKD 450

Composite Delta for 1 MAY RMZ50.00 Call: +0.5

The Composite Delta:Long 1 MAY RMZ50.00 Call = +1 x 0.5 = +0.5

i.e. As there is only one contract month, no Intracommodity Spread of RMZ can be formed inthe Portfolio D.

3. Short Option Minimum Charge

Short Option Minimum of HKB = HKD 500 x 2= HKD 1,000Short Option Minimum of RMZ = RMB 0


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Total Margin Requirement= Max [Commodity Risk, Short Option Minimum Charge] + Total Option Value

= Max [Scan Risk + Intracommodity Spread Charge, Short Option Minimum Charge] + TotalOption Value

Total Margin Requirement of HKB (HKD)= Max [1,771 + 450, 1,000] + (-HKD 1.00 x 1 x 400 + HKD 0.60 x 2 x 400)= HKD 2,301

Total Margin Requirement of RMZ (RMB)= Max [1,185 + 0, 0] + (-RMB 3.00 x 400)= -RMB 15

Since there is a margin credit in RMB (i.e. negative Total Margin Requirement) and margindebit in HKD (i.e. positive Total Margin Requirement), the margin credit will be used to offsetthe margin debit. Before the offset, the margin credit will first be converted into the currencyin which margin debit is denominated.

Assuming the Conversion rate for RMB/HKD = 1.2267,

Total Margin Requirement after the offset= HKD 2,301 RMB 15 x 1.2267= HKD 2,283

Portfolio D under Gross Margining

Long 1 MAY HKB90.00 CallShort 2 JUN HKB100.00 Call, Settlement Price = HKD 0.60Long 1 MAY RMZ50.00 Call

1. Scan Risk

Risk Arrays of HKB (HKD):

Line +1 MAY HKB90.00 Call*P/L

-2 JUN HKB100.00 Call P/L

1 0 +802 0 -503 0 +1,2344 0 +1,1265 0 -1,0186 0 -1,2887 0 +2,422

8 0 +2,3669 0 -2,01810 0 -2,408


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11 0 +3,64212 0 +3,61213 0 -2,94614 0 -2,41415 0 +2,574

16 0 -1,81017 0 -1.30

* Long position is ignored

Scan Risk = HKD 3,642

Risk Arrays of RMZ (RMB):

Line+1 MAY RMZ 50.00 Call*

P/L

1 0

2 0

3 0

4 0

5 0

6 0

7 0

8 0

9 0

10 011 0

12 0

13 0

14 0

15 0

16 0

17 0

* Long position is ignored

Scan Risk = RMB 0


Total Margin Requirement of HKB (HKD)

= [Max (Scan Risk, Short Option Minimum Charge) for each contract] + Option Value= Max [3,642, 2 x 500] + (0.6 x 2 x 400)= 3,642 + 480= HKD 4,122

Total Margin Requirement of RMZ (RMB)= RMB 0

prime margining guide

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